Moody’s cuts Origin outlook to negative

Moody’s has downgraded the outlook on
Origin Energy
’s Baa1 credit rating to negative from stable in light of the announcement Thursday on the $US14 billion investment for the first phase of the Australia Pacific liquefied natural gas project.

Moody’s analyst Spencer Ng said the negative outlook “primarily reflects uncertainty in relation to the project’s funding structure, which has yet to be finalised."

Approval of the project has raised Origin’s funding requirements and will add pressure to the company’s capital structure, Moody’s said.

While that is mitigated by the cash flow generated from Origin’s core energy retailing business, construction of the project also raises “considerable execution challenges," Mr Ng said.

Origin on Thursday said funding for its 42.5 per cent share of the APLNG investment will be covered from a range of sources, including existing undrawn debt and cash totalling about $3.6 billion, cash flows from its own business, new debt facilities, potentially including project financing, and up to $1 billion from a dividend reinvestment plan over the next two years, underwritten by Merrill Lynch.

Moody’s said Origin’s rating outlook would likely revert to stable if the company implements a “prudent" funding structure that retains its financial leverage at a “manageable" level.

But the rating could face further downward pressure if there are major disappointments in project delivery or cost, or any deterioration in the operating performance of Origin’s energy retailing business, it said.